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Innovation Hub: Which Companies Care About the Environment?

Fri, 04/17/2015 - 16:39
Kara Miller

Transforming big businesses into green businesses might seem like a thorny process.

But older, established companies like Ford have the potential to ignite a new generation of environmentally friendly products, according to Andrew Winston, author of The Big Pivot. By shifting their manufacturing process—like substituting aluminum for steel, as Ford has done—such companies are able to quietly lighten their carbon footprint.

Tech giants, meanwhile, can be surprisingly rough on the environment. Consider this: the “cloud” consumes more energy than the nation of Japan.

But Winston says that some Silicon Valley heavyweights—like Airbnb and Uber—are forging a new business model, a model that reallocates existing products, rather than producing new ones.

I spoke with Winston about how—and whether—companies are embracing environmentalism.

[This interview has been edited and condensed. For the full conversation, visit innovationhub.org.]

Kara Miller: Is concern for the environment fundamentally changing companies?

Andrew Winston: The number of companies that are aware that they need to think about environmental issues or deal with things like climate change is a lot now. But the field of companies that have made it really core to their business is still pretty small. And the businesses in which you hear CEOs talk about environmental issues pretty fluently and really understand how those issues will impact their business is still fairly narrow.

KM: Can you give me an example of a company that is trying a new, unorthodox approach to thinking about the environment?

AW: My work focuses on the big traditional companies and how they are making shifts in how they do things. For example, Ford Motor makes cars, and those vehicles burn a lot of fuel and create a lot of emissions. But ten years ago, Ford was setting their plans for product development based on climate. They looked at what the targets needed to be globally to reduce emissions, and asked what that meant for their vehicles. They looked at different technologies, biofuels, new engine technologies, and of course electrified vehicles. And it has led to the announcement a year ago that the Ford 150 truck would be lighter in 2015. They took 700 lbs out of their best selling, heaviest vehicle, and that reduces emissions.

KM: Where does the incentive for that kind of change come from? Consumers? Government?

AW: It’s a combination. We, as consumers, haven’t been pushing companies that hard. It comes from expected policy and government. And I think it comes from business to business. It’s the pressure of companies on each other. We see the big retailers like Walmart and Target demanding more of all their consumers’ product suppliers. So it is not that consumers are saying: give us greener products with a lot less packaging, but they are happy to buy them when they’re there at the same price and same quality.

KM: When you see smaller companies grow, are they growing in a way that is different from the model that a Ford, a GE, or a GM would have taken 50 or 100 years ago?

AW: If you’re in new technology, it seems like you’re able to question everything. I feel like the startups or the midsize companies are able to ask questions that challenge business models a lot better. The largest hotel chain in the world now is arguably Airbnb, and they don’t own any hotels. And Uber doesn’t own any cars, but they’re offering rides. So you can challenge business models now because of the new technologies. And some of that leads towards lower consumption, a lower footprint on the world. There is some benefit to these newer models.

KM: Do you think that companies have to ask us to rethink luxury and happiness, so that it doesn’t involve so much stuff?

AW: I do. I think companies need to take the lead and ask customers to use less of their products. That can sound completely against the point of business, which is to grow, grow, grow. But it doesn’t have to be. There’s going to be things that people want to use less of, they want the higher quality thing, or they want to be shown how to save money. And as a business, you want to be a partner in that. I put my faith, good or bad, in companies to take the lead.

Tricia Breton contributed to this write-up.

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Dip, But No Slowdown in First-Quarter VC Funding, & Top 10 Deals

Fri, 04/17/2015 - 01:01
Bruce V. Bigelow

A new MoneyTree Report being released today shows that U.S. venture capital activity eased off during the first three months of 2015. Yet it still marked the fifth consecutive quarter in which U.S. venture funding remained above $10 billion.

VCs invested $13.4 billion in 1,020 deals throughout the U.S. during the first quarter of 2015, according to the MoneyTree Report. Funding was down 10 percent from the $14.9 billion that VCs invested during the previous quarter, according to MoneyTree. The deal count likewise declined by almost 8 percent from the fourth quarter of 2014, when MoneyTree counted 1,103 deals.

Yet the investment level in the recent quarter still was about 26 percent higher than the first quarter of 2014, when VCs invested more than $10.6 billion in 1,030 deals, according to MoneyTree.

While venture investing is typically lower in the first quarter than the rest of the year, “This was still a robust, big quarter,” said Tom Ciccolella, who works with venture firms in San Jose, CA, as the U.S. Venture Capital Leader for the PwC accounting firm. “You’d have to go back to 2000 to find a first quarter that was bigger.”

One explanation for the continuing surge is that investments in late-stage deals increased by 50 percent, with $4.2 billion going into 207 companies, marking the biggest quarter for dollars invested in later stage companies since the fourth quarter of 2000. Four of the biggest 10 deals in the quarter were late-stage investments. (Our list of the top 10 deals is below.)

“We saw 12 [venture] deals over $100 million, including two $1 billion investments in Q1, continuing the megadeal trend,” Ciccolella said.

Another reason is that hedge funds and other types of private equity investors have been joining later-stage, venture-backed deals. “The money that VCs have been putting into these companies has not changed appreciably since 2007,” according to John Taylor, who heads research at the NVCA. Traditional venture capital firms have been investing at a rate that ranges from $7 billion to $8 billion a quarter, Taylor said.

Investment levels above that are … Next Page »

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West Coast Biotech Roundup: CRISPR, Doudna, Aduro, Amgen, NEA & More

Thu, 04/16/2015 - 18:27
Alex Lash

Berkeley, CA, is famous as the birthplace of the Free Speech Movement, led by Mario Savio, and the modern foodie movement, led by godmother Alice Waters. What about the gene editing movement? Jennifer Doudna, one of the scientists behind the technology known as CRISPR/Cas9, is a biochemist at the University of California, Berkeley. She was in the news this week twice. First, because she and her colleagues are in a rip-roaring patent fight over the ownership of CRISPR/Cas9—see our item below—and second, because Time Magazine named Doudna and her co-inventor, the European-based Emmanuelle Charpentier, to its list of the year’s 100 most influential people.

The Berkeley news doesn’t stop there. The East Bay town is also home to the latest biotech IPO rocket ship, also known as Aduro Biotech. Its debut this week was another sign of very bullish times. Finally, Bayer Healthcare announced a major expansion of its local R&D facility, making it a good week for the town often called Bezerkley. Let’s get to the roundup.

—The fight over ownership of the groundbreaking CRISPR/Cas9 gene editing technology grew more intense. The group centered around Doudna and Charpentier pressed the U.S. Patent and Trademark Office to revisit its 2014 decision to grant a patent to the Broad Institute and MIT. A trove of documents supporting their case, including a declaration from gene editing pioneer Dana Carroll, were published on the PTO website Monday. The two sides could be facing a long hearing, even as companies affiliated with each side speed toward CRISPR-derived human therapeutics.

—Venture giant New Enterprise Associates, with headquarters split between Menlo Park, CA, and the Washington, DC, area, said this week it has closed on its 15th fund plus a side fund, with a total of $3.1 billion in commitments. NEA is a major biotech investor.

—Aduro Biotech (NASDAQ: ADRO) of Berkeley, CA, debuted on the Nasdaq with a pop. It raised $119 million, selling 7 million shares at $17 each, then saw its stock climb 147 percent in its first trading day Wednesday.

—San Diego’s Cidara Therapeutics (NASDAQ: CDTX) also went public, raising nearly $77 million (4.8 million shares at $16 each) to move its antifungal drug pipeline forward into clinical trials. Public markets were less enthusiastic, at least on the first day, with shares closing right at $16 Wednesday.

—San Diego-based Viking Therapeutics, which intended to raise $55 million in an IPO last September, has returned with a slimmer offer, a new banker, and a new lead product. It now plans to raise $20 million by selling 2.5 million shares at $7 to $9 apiece, according to Renaissance Capital. In September, its lead drug candidate was a treatment for type 2 diabetes, but Viking now says it’s focused on drug to ease rehabilitation after hip fracture surgery.

—San Francisco-based women’s health firm Medicines360, which has built a unique nonprofit business model, has launched a new intrauterine device (IUD) for contraception, branded Liletta. Its commercial partner Actavis is responsible for for-profit sales, while Medicines360 is handling sales to public health clinics.

—Amgen (NASDAQ: AMGN) of Thousand Oaks, CA, won FDA approval for ivabradine (Corlanor), a treatment for chronic heart failure. It’s the first drug approval for the biotech giant’s cardiovascular pipeline.

—Bayer Healthcare said it would pour $100 million into its Berkeley, CA, campus to build a new testing facility for its future hemophilia A products. Xconomy’s Ben Fidler recently wrote about Bayer and its competitors racing to develop gene therapies for hemophilia.

—San Diego’s Ichor Medical Systems agreed to collaborate with Janssen Pharmaceuticals on DNA-based vaccines for chronic hepatitis B. The partners plan to use Ichor’s electroporation technology to make it easier for the vaccines to enter cells. Ichor said it will get an undisclosed payment upfront and potential milestone payments up to $85 million.

—Qualcomm Life, the digital health subsidiary of San Diego-based Qualcomm (NASDAQ: QCOM), has agreed to collaborate with North Kansas City, MO-based Cerner (NASDAQ: CERN). Cerner intends to use Qualcomm Life’s 2net technology to transmit data collected from its wearable sensors and medical devices in the home to Cerner’s healthcare clients.

—San Francisco-based Benchling, a maker of cloud-based tools for life science data sharing and analysis, said Wednesday it has raised a $5 million Series A round led by Andreessen Horowitz.

—Researchers at the University of Washington in Seattle are teaming up with Medtronic to develop a deep brain stimulation device to treat people with essential tremor, a chronic shaking of the hands.

—SGI-DNA, a subsidiary founded two years ago by San Diego-based Synthetic Genomics to commercialize its synthetic DNA business, unveiled the BioXp 3200, a laboratory instrument that lets scientists design and produce high-quality, linear DNA fragments. The machine is intended to automate production and allow researchers to focus on experimental design.

Xconomy San Diego editor Bruce Bigelow contributed to this report.

Photo of the old map of Berkeley courtesy of Eric Fischer via a Creative Commons license.

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3 Things Startups Need to Know to Move to the Cloud

Thu, 04/16/2015 - 13:38
Shellye Archambeau

Despite concerns around data security, businesses are optimistic about the cloud. In fact, software-as-a-service adoption has more than quintupled from 13 percent in 2011 to 72 percent in 2014, according to a cloud computing survey conducted by North Bridge Venture Partners and Gigaom Research.

For startups, the cloud has always been a great equalizer, enabling nascent businesses to compete on par with their larger, more established counterparts. In a Rackspace survey on the economic impact of the cloud, a quarter of small and medium enterprises indicated that they had increased profits by at least 25 percent, and up to 75 percent, as a result of cloud computing. What’s more, 84 percent of companies were able to increase their investment back into the business by up to 50 percent, and 34 percent saved between $7,500 and $45,000 on IT spend—all because of cloud computing.

Lower upfront costs, greater flexibility, and scalability—these are just a few reasons why your startup might be excited about jumping onto the cloud bandwagon. Before you do, here are a few things to think about:

1. Public, Private, or Hybrid Cloud?

Deciding what kind of cloud model to adopt will depend on various factors, such as the mission criticality of your applications and data, regulatory compliance obligations, and the scope of your IT budget.

Most businesses that are just starting out find great value in opting for public clouds, where the core infrastructure is shared by many organizations and hosted by a third party. The perks are many—easy access to computing resources and relatively low costs due to a pay-as-you-go model.

However, the public cloud comes with its own concerns around data security and performance slowdowns. So, if you’re in a highly regulated or sensitive industry such as banking and financial services, healthcare, or online retail, it might be wise to consider a private cloud.

Or better yet, you might opt for a hybrid cloud model which combines the best of both public and private clouds. RightScale’s 2015 State of the Cloud Report indicated that 82 percent of enterprises today have a hybrid cloud strategy, up from 74 percent in 2014.

With the hybrid cloud model, you get to keep confidential customer and financial information and high performance applications on the private cloud, while using the public cloud for less mission-critical operations, like e-mails and data backup.

2. Know Which Services and Applications to Move to the Cloud

According to RightScale’s report, 68 percent of enterprises run less than 20 percent of their applications on the cloud. However, 55 percent of enterprises also reported that a significant portion of their application portfolio is built using cloud-friendly architecture, and is therefore able and ready to be moved to the cloud.

When it comes to cloud workloads, the RightScale report revealed that 38 percent of enterprises run all or most development and testing on the cloud, while 34 percent run all or most websites on the cloud, and 30 percent run all or most Web applications on the cloud.

My advice for startups is to begin your cloud journey with applications that don’t require very low latency or high performance and availability. Once you get a feel for how these apps function in the cloud, you can move your core databases in there.

Generally, most services can be easily migrated to the cloud, including e-mail, messaging, file sharing and backup, as well as accounts, expense reporting, and customer relationship management. However, if you have any critical applications or transaction-intensive systems where the risk of … Next Page »

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UCSD Marks an Innovation Milestone: Control Over Tech Transfer

Wed, 04/15/2015 - 20:15
Bruce V. Bigelow

San Diego’s place as a hub for innovation in biotechnology, chip design, telecommunications, and other industries was made possible by a change that went mostly unnoticed in early 1994, UC San Diego Chancellor Pradeep Khosla said Tuesday night at a campus event.

That was the year a University of California ad hoc advisory committee recommended a reorganization of the UC system’s centralized process for technology licensing and commercialization. A final report issued that March concluded that the process for patenting and licensing new technologies should instead be distributed—and faculty-centered, inventor-centered, and campus/laboratory-centered.

By that fall, UC San Diego had established its own technology transfer office, gaining control from the UC office of the president over the research breakthroughs and inventions coming out of its own laboratories.

And that has made all the difference, Khosla said at a gathering that marked “20 years of innovation and impact” by the UC San Diego Technology Transfer Office. Controlling the process and working to make technology licensing easier has enabled UC San Diego to serve as a driving force in the formation of local technology-based companies, he said.

In a great blossoming over the past 20 years, technology licensed by the school has led directly to the creation of 204 companies in San Diego, and more than 3,600 U.S. patent applications—with 1,090 U.S. patents issued.

These days the San Diego campus is spinning out between 12 and 17 startups a year, according to Bill Decker, an associate director of the UC San Diego Technology Transfer Office.

In addition, Khosla said UC San Diego now ranks among the top five U.S. universities that are spending the most on R&D, with more than $1 billion a year coming from a host of federal, state, industry, nonprofit, and institutional sources. “San Diego would not be what it is now without UC San Diego,” Khosla said. “We did not become great by accident.”

In a short talk, Irwin Jacobs, a former UC San Diego professor of computer science and electrical engineering, recalled the beginnings of Linkabit and Qualcomm (NASDAQ: QCOM) in San Diego. San Diego Mayor Kevin Falconer, who also spoke at the event, hailed UC San Diego for creating a platform for innovation, saying, “I love talking about our innovation economy. I’ve done it here, and all over the country.”

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Acorns Lands $23M For App Attracting Investment-Phobic Millennials

Wed, 04/15/2015 - 20:04
David Holley

A bevy of surveys paint a pretty clear picture: Today’s young adults don’t trust the financial markets.

Fewer in the younger generation—broadly dubbed the millennials—are putting their money in traditional investment markets after they saw turn upside-down in 2008. Instead, they are holding onto the cash. Online credit card marketplace, Austin,TX-based CreditCards.com, says over a third of people 18 to 29 have never had their own credit card.

Only 26 percent of adults under 30 say they own stock, according to survey results from March published by Bankrate.com. More than 50 percent of those who don’t invest in stock say it’s because they don’t have enough money, while another 30 percent say it’s because they don’t have enough knowledge or don’t trust brokers, according to Bankrate.

A company called Acorns in Newport Beach, CA, which received a $23 million Series C round today, may be changing that. Acorns’ app links to a user’s debit and credit cards. When a person makes a purchase on the card, say $1.50 for a soda, he or she can round the amount of the purchase up to, for example, $2.

Acorns then sets aside that extra 50 cents to invest it in a diversified group of index funds, typically what are called exchange traded funds (ETF). An ETF invests in companies that are in the index it tracks, such as the S&P 500. Acorns recommends portfolios based on factors including a user’s age, income, and investment time horizon, though the user can chose a portfolio as aggressive (potentially risky) or safe (potentially lower returns) as they want, the company says.

The company, founded in 2012 by father and son Walter and Jeff Cruttenden, received help developing its investment method from Harry Markowitz, a Nobel Laureate and economist now at the UC San Diego Rady School of Management. Markowitz’s ideas about diversifying investments to reduce risk and maximize returns have become the basis of modern portfolio theory.

Acorn will start investing for an individual when a person’s pool of change reaches $5. Acorns charges a fee of $1 per month for investors who have portfolios of less than $5,000, and 0.25 percent each year for users with more than that, the company says.

The tool seems to be attracting those millenials. Acorns says that 75 percent of its investors are under the age of 35. Since its founding, the company has attracted more than 650,000 investors who have opened more than 300,000 investment accounts.

With the $23 million, Acorns plans to “scale and drive product innovations,” the company says. It has raised $32 million total. The Series C was led by Greycroft Partners and e.ventures, and Sound Ventures, Garland Capital, and MATH Venture Partners also participated.

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Big Day For Biotech IPOs as Aduro More Than Doubles In Price

Wed, 04/15/2015 - 16:30
Alex Lash

[Updated 4/15/15, 7:14pm. See below.] Aduro Biotech (NASDAQ: ADRO) kept the immunotherapy bulls running Wednesday after raising $119 million in its initial public offering.

Berkeley, CA-based Aduro sold 7 million shares at $17 apiece, a price that has more than doubled in its first trading day on the Nasdaq, pushing past $38 in late trading. [Update: Its shares closed Wednesday at $42, a gain of 147 percent. This story's headline has been changed to reflect the closing price.] Aduro’s most advanced product, a cancer immunotherapy treatment, is in mid-stage clinical trials for pancreatic cancer. The debut comes soon after the launch of a cancer immunotherapy stock index, created by an independent investor to gain a clearer picture of the value of biotech’s hottest sector. Aduro isn’t yet part of the index, but its direct competitor Advaxis ((NASDAQ: ADXS) is. Advaxis shares have fallen 12 percent today.

Two other biotechs debuted today. Cidara Therapeutics (NASDAQ: CDTX) of San Diego sold 4.8 million shares at $16 apiece and 45 minutes before market close was trading up slightly at $16.05 a share. Xbiotech (NASDAQ: XBIT) of Austin, TX, raised $76 million, selling 4 million shares at $19 each.

Both Aduro and Cidara hit or exceeded their intended marks with their IPOs, a sign that the bankers who usher companies to the IPO altar have not overestimated market demand. It’s another data point for the debate over biotech’s bull run and how it might come to an end. If anything, Aduro did slightly better than its expected range of $14 to $16 per share. Cidara, formerly known as K2 Therapeutics and founded three years ago in Boston, was aiming to debut in the range of $14 to $16 a share.

Xbiotech used a more unusual IPO method. Known as a “best efforts” offering, it had set its sights on specific sales terms early in the process and instructed its bankers to find as many willing buyers as possible. If the bankers weren’t able to meet the target, the offering would have been called off, according to Xbiotech’s regulatory filings. Its shares were up 24 percent to $23.61 in the last hour of trading.

There were other notable aspects to today’s IPOs. In an odd bit of timing, Aduro locked down a significant partnership only two weeks before it went public.

Novartis said it would pay Aduro $250 million up front to co-develop drugs that stimulate the immune system to fight cancer. The size of the deal was unusual, because the type of immunotherapy, called STING—stimulator of interferon genes—hasn’t yet been tested in humans. Its lead program uses a nontoxic version of the bacterium Listeria, engineered to mimic certain proteins on tumor cells. When the patient’s immune system gobbles up the Listeria, immune cells focus their attack on the tumor cells that bear the same proteins. As it signaled in the run-up, Aduro also sold $25 million in stock at $17 a share to Novartis (NYSE: NVS).

Cidara’s IPO also marks a certain leap of faith in untested biotech programs. The antifungal drug maker’s lead product has yet to reach human trials. The IPO marks the second for Cidara CEO Jeffrey Stein, who guided antibiotic developer Trius Therapeutics, also of San Diego, to an IPO in 2010—under more difficult circumstances—and later a $707 million acquisition by Cubist Pharmaceuticals. The cash will help Cidara advance its anti-fungal products, including lead candidate CD101, as both an intravenous treatment for systemic fungal infections and a topical treatment for vaginal yeast infections.

Aduro still has the chance to sell 1.05 million more shares through its bankers in the next 30 days. Cidara’s bankers have the option to sell 720,000 additional shares.

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Healthcare Is Transforming Regardless of What Happens to the ACA

Wed, 04/15/2015 - 07:20
John Koster

Powerful arguments and emotions continue to challenge the future of the Affordable Care Act (ACA). The Supreme Court, partisan ideology, presidential elections, and deeply held convictions about the role of government will all make their mark.

Most healthcare leaders, however, share a fundamental belief that healthcare transformation is happening now—driven by some of the same forces that have upended other industries. Changes in the ACA will influence the direction of healthcare transformation, but will not alter the driving forces—which have in common the primacy of the individual.

Individual healthcare consumers have unprecedented access to information, are biologically unique, and want to make the best use of their financial resources.

Businesses that do not respond to individuals don’t stay around long. Healthcare leaders and entrepreneurs know that, and see in each of the big forces outlined here an imperative to transform, and an opportunity.

But there is an important difference in healthcare.

Healthcare is personal, complex, and often life or death. The relationship between a clinician and a patient is a sacred trust. This sacred trust—the caring relationship—must be preserved through healthcare’s transformation. Digitization and technology are tools used by the clinicians and patients in the context of a personal, healing relationship. The synergy of “high tech and high touch” is the goal.

Democratization of Information

Many aspects of our lives have been digitized, creating massive amounts of data that can be processed, analyzed, and organized for effective use by individuals and businesses. A mobile, connected device can bring you the world’s information. This “democratization of information” about ourselves and our world is a driving force of transformation.

It changes how we select goods and services. Businesses that were once based on proprietary access to information now find their customers have that information, too. We get what we want, when we want it, on our terms, and healthcare is no exception.

Monitors, sensors, telemedicine, and iPhone apps allow individuals to self-manage and use information on their terms.

Young people who have grown up in the information age wonder what is wrong with healthcare. When they go to the doctor, they; fill out redundant forms, wait for too long, and have no idea beforehand what it will cost. They are the future and, as they increase their use of healthcare, they will demand its transformation. Young physicians are no exception to this. They will lead transformation with or without their older leaders.

Unique, Biological Individuals

Digitization, analytics, and “recombinant innovation” across disciplines, are propelling profound and accelerating innovation in medicine. Genomics, proteomics, and computational biology are creating revolutionary changes in understanding of the nature of disease, and a deepening appreciation of the uniqueness of individuals. Individuals will expect their uniqueness to be reflected in the healthcare they receive.

For example, we now understand that cancer is not necessarily a disease specific to an organ, but can be a disease of the genome. A unique genomic aberration can result in a cancer of the breast, ovary, or pancreas. This deeper understanding of the disease is reflected in treatment. New insights into individuals’ genetically driven response to treatment are leading to personalized prescribing of some medications.

But medications—like almost all aspects of healthcare—are too expensive.

Individual Financial Responsibility

Employers, insurers, and the government are reducing their exposure to the financial risk of healthcare costs.

Regardless of the ACA’s future, responsibility for the financial risk of healthcare will continue to be moved to individuals and providers. High-deductible health plans continue to grow rapidly. Healthcare providers are adjusting to “value-based payments.”The end of fee-for-service is in sight.

This transfer of financial responsibility will continue no matter what happens to the ACA. The only questions are of timing and magnitude.

Healthcare leaders and entrepreneurs, some new to healthcare, are creating new services and systems to meet the needs of unique individuals. New, innovative services have been developed for needs ranging from maintaining a healthy life style to self-managing a chronic illness to creating price lists for healthcare services. The magnitude of investment flowing into healthcare innovation reflects the size of the opportunity to improve healthcare for the unique individual.

The impact of the ACA is important, but healthcare transformation is inevitable. The unique individual, you, enabled by new information driven tools and partnering with healthcare professionals will usher in a new era of healthcare.

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Kyriba Raises $21M to Expand Treasury Management Software

Wed, 04/15/2015 - 01:48
Bruce V. Bigelow

San Diego-based Kyriba, a cloud-based provider of corporate treasury management software, raised $21 million in a Series C financing round that includes a strategic investment by HSBC, the U.K. multinational financial services company that ranks as the world’s second-biggest bank.

Existing investors that also participated in the round include France’s BRED Banque Populaire, Beirut-based Daher Capital, Paris-based Iris Capital, and Los Angeles-based Upfront Ventures.

Chief Financial Officers, Treasurers and finance executives at multinational corporations use Kyriba’s software to optimize their daily cash management, manage their risk (including compliance with Sarbanes-Oxley requirements), and track bank accounts and investments.

The company intends to use the funding to accelerate its growth and product development, spokesman Tim Wheatcroft said yesterday. “We have some pretty aggressive strategies, particularly in the United States,” he said.

“Cloud-based services are transforming the way corporates interact with financial services providers,” Christophe Chazot, HSBC’s group head of innovation, said in a recent statement from Kyriba. “An innovative and leading provider in its field, Kyriba is a strong addition to our portfolio of strategic investments.”

Kyriba raised $18.2 million in a Series B round in 2013, which helped the company add 300 new customers worldwide through 2014, Wheatcroft said. Kyriba now has about 1,000 customers, which are mostly global corporations with annual revenue that ranges from $1 billion to $20 billion.

Kyriba was spun off from the French financial software supplier XRT in 2000, and moved its headquarters to San Diego in 2003, when Jean-Luc Robert became CEO. The company has more than 300 employees worldwide, and anticipates the number will grow significantly over the coming year, Wheatcroft said.

Including the latest round, Kyriba has raised more than $71 million since 2001, according to CrunchBase.

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A New Day for Digital DNA

Tue, 04/14/2015 - 14:28
Robert Urban

Digital technology and molecular biology are advancing in ever more wondrous ways, perhaps none so transformative as the biological storage of data. It sounds crazy, but we could be on the cusp of a once-unthinkable kind of convergence.

Yet, in a way, it’s not so far-fetched. All life forms have sensors to monitor and respond to their environment. Thanks to evolution, these systems are far more sophisticated than what humans have produced with electronics. Take the human nose for example: with 400 different sensors (so-called “receptors”) working in parallel, it is capable of distinguishing one trillion different odors.

Biology is extremely good at sensing, or “reading,” but what’s new is our ability to store those details by “writing” them to memory. Not the silicon-based memory of ever-smaller hard drives, but writing into DNA itself by taking advantage of new discoveries from the microbial world.

How could we connect biologic sensors to DNA-based digital memory devices? A little background is perhaps in order.

In a way, our own DNA—written in 3 billion letters, or as we prefer to call them “base pairs”—is a living document. It’s a memory storage device that defines who we are, where we’ve come from, and the trials and tribulations of our journey. Our story is a long one and rather slowly written.

The idea of a “genome” (and the word itself) is a rather recent scientific notion, and original credit is given to the University of Hamburg botanist Hans Winkler. In the 1920s, when working on a new textbook, Winkler merged the German word “gene” with “ome” (the Greek suffix for body), and, voilà, “genome” was born. But it was the seminal paper of Watson and Crick in 1953 that forever sealed the concept (and the word) into the consciousness of society at large.

For the most part, changes to genomic stories are recorded at speeds proportional to the generational time of a given organism. Mutations occur in DNA, and if the organism survives, the mutations can be passed on to the next generation.

If a change, by chance, provides the host with some type of advantage, then the host’s descendants will, over time, become more prevalent. This is the basis for Darwin’s natural selection.

But microbes, under harsh selection pressure, have evolved different genomic “memory” systems—in other words, a different way to record changes in their genomic stories. The story starts with microbial immunity.

Like animals, microbes have to contend with competing and often pathogenic life forms. But unlike animals, single-celled microbes are under pressure to remain genomically simple, so they have entirely different tools to recognize and react to their deadly competitors.

Using a family of enzymes called CRISPR/Cas, microbes capture and record the genetic fingerprints of pathogenic organisms such as invasive viruses. They “write” the details of the invader into their own genomes, then “read” it to rapidly defend themselves when the same invader returns. The CRISPR/Cas system is remarkably simple and is easily co-opted and redeployed as a potential research or therapeutic tool.

This brings us back to convergence of biological sensors and information storage.   When biological receptors are coupled to the DNA writing tools—in nature or in the lab—living information systems result. For example, bacteria could be built to monitor the presence of specific substances during transit of the gastrointestinal tract and record the journey by writing specific details into DNA that can be subsequently read back with DNA sequencing. Photoreceptors, like those found in the human eye, could be coupled to pulsed lasers to rapidly write information into DNA. And the catalogue of biological sensors amenable to this type of reengineering is enormous.

The potential industrial and medical applications of these systems are substantial, yet also elicit appropriate concerns and implications. The power of these tools is raising social questions of a kind not confronted since the 1970s, when the now famous Asilomar meeting in 1975 resulted in a worldwide moratorium on recombinant DNA until an approach for oversight was established.

Recently the scientists who helped turn bacterial CRISPR/Cas into a gene editing system co-authored a paper with other experts in the field calling for a similar worldwide moratorium, this time on the use of their invention to engineer the human germline when pregnancies are involved. The centrality of maintaining public trust is doubly underscored in their recommendations: “At the dawn of the recombinant DNA era, the most important lesson learned was that public trust in science ultimately begins with and requires ongoing transparency and open discussion. That lesson is amplified today with the emergence of CRISPR-Cas9 technology and the imminent prospects for genome engineering. Initiating these fascinating and challenging discussions now will optimize the decisions society will make at the advent of a new era in biology and genetics.”

In the past 20 years, the Internet, digital cameras, silicon memory, and email have let us create a tremendous new digital world. Add in new genetic recorders that could be created using CRISPR/Cas technology and the quick, cheap, and sustainable ability to store and share information recorded biologically will set the stage for new industries. Yet, at the same time, these new tools must be carefully limited to applications for which ethics and honest interpretation of our understanding can set defined limits.

 

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Pop That Bubble: 5 Reasons Biotech Needs A Different Metaphor

Tue, 04/14/2015 - 08:09
Alex Lash

Back in April 2011, at a biotech conference in San Francisco, a panel convened to discuss how hard it was to build biotech companies that could push through long, costly clinical trials before a drug comes to market. One panelist hedged to say, well, at least the financial reticence had a silver lining: there was no danger of a bubble. Biotech venture veteran Camille Samuels responded, “Hey, I’ll take a bubble!”

Those were lean times. The biotech VC shakeout had begun, the IPO window had reopened only slightly after the global financial crisis, and several VCs were scrambling to invest in ways that would require less capital, even if it meant less reward for success.

From there, however, it took all of two years for observers to wonder if Samuels’ wish had in fact come true. In mid-2013, one biotech journalist wrote that “talk of a bubble is, well, bubbling up, and one wonders if it will pop in the summer heat.”

Nice call, pal. I wonder who wrote that? To be fair, I wasn’t the only scribe to float the B-word that year and mull the inevitable end. After all, it’s better to hedge with a little skepticism than get caught with your Dow-36,000 pants down.

Stocks will rise and fall, of course, and exuberance, rational and otherwise, will come and go.

“There will always be reasons underlying investor sentiment for one sector being hotter than another,” says Ernst & Young’s biotech consulting practice leader Glen Giovannetti. “It can’t be like this forever.”

Certainly not. The whiff of overweening effervescence is always nigh.

But I want a new metaphor. Why does a bull run like biotech that has been on since the start of 2012 necessarily presage a sobering pop? Think, perhaps, of a feather dropped out of a window instead of a bubble stretched to its maximum. In other words, when the inevitable correction comes—and far be it from me to try and predict when or why—there are signs the sector is strong enough to make it a gentle one.

Resilience. The two major biotech indices have risen more than 240 percent since the beginning of 2012. I won’t argue that nothing can happen to reverse the trend. Quite the opposite: In January, just before this year’s annual J.P. Morgan Healthcare Conference, I identified five factors that could trim biotech’s sails this year.

But it’s remarkable how the sector has absorbed what first seemed like body blows to little ill effect. It’s starting to feel like a big reversal—a bubble pop instead of a slow, feathery descent—would require severe external pressure, like another financial downturn that had little to do with the sector’s fundamental health.

Let’s recap some of last year’s resilience. In March, Congressman Henry Waxman (D-CA), a prominent drug-industry critic, took Gilead Sciences (NASDAQ: GILD) to task for the price of sofosbuvir (Sovaldi), a breakthrough in the treatment of hepatitis C. The long-awaited assault on high drug prices had begun. Biotech indices fell about 20 percent right away but by the end of June were basically back to pre-Waxman levels. Then in July, a Federal Reserve report declared biotech and tech stocks “overvalued.”

The biotech indices dipped briefly then resumed their upward march. Last December, pricing again took center stage, as the most powerful drug-purchasing middleman in the U.S., Express Scripts (NYSE: ESRX), made AbbVie (NYSE: ABBV) its exclusive provider of hepatitis C drugs. Hep C was surely ground zero for a price war that would radiate out to other kinds of treatment. Since that news, the indices are up about 15 percent.

If drug price wars don’t scare off investors, which industry-specific shocks might? … Next Page »

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VC Funding Slows as Big Funds Crowd into Late-Stage Venture Deals

Tue, 04/14/2015 - 08:00
Bruce V. Bigelow

Following a December surge, when U.S. venture firms invested $7.2 billion in 342 deals nationwide, VC activity reset at a lower pace during the first quarter of 2015, according to data being released today by CB Insights.

The New York venture capital tracker says VCs invested $11.3 billion in 805 startups over the three months that ended March 31.

That was a 17.5 percent drop from the $13.7 billion that VCs invested in the prior quarter, and a 14.6 percent decline from 943 deals in the fourth quarter.

In the first quarter of 2014, venture firms invested $10.1 billion in 918 deals.

Yet the first-quarter decline in VC activity belied an increase in overall investment activity, as hedge funds, private equity, mutual funds, and sovereign wealth funds poured more capital into later-stage deals with venture-backed companies. When such sources are included, CB Insights says 1,011 U.S. venture-backed companies raised a total of $17.7 billion in the first quarter.

So venture firms are facing more competition in later-stage deals. According to CB Insights, VC firms typically lack the amount of assets that mutual funds and big private equity funds have under management, and VCs might not be willing to match the valuations that bigger players are offering.

“What we are seeing is … Next Page »

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Peer-to-Peer Lending Grows Up, and Gets Wall Street’s Attention

Mon, 04/13/2015 - 16:46
David Holley

[Corrected 4/14/14, 11:31 am. See below.] Borrowing money, or refinancing borrowed money, is easier now than it’s ever been as new online lenders put credit lines just a few clicks away. And now the traditional titans of Wall Street are jumping on board.

In the last decade, a handful of online lending companies have chipped away at the edges of our debt-centric culture of credit cards and their earlier incarnations, dating back more than a century.

Fundbox, Dealstruck, Lending Club, Prosper Marketplace—which just raised $165 million from investors including Credit Suisse and J.P. Morgan—and many others have made obtaining a new line of credit the kind of easy, self-serve transaction we’ve come to expect. For both personal and business loans, these companies developed methods of investigating a person who is seeking a loan almost instantaneously—through algorithms that analyze myriad factors online to make a decision about creditworthiness—and can connect those borrowers with peers who will finance their loan.

But what began as a niche financial service for consumers who wanted relief from high-cost credit cards and small businesses that couldn’t get a loan from the traditional banking system is now attracting interest from the heart of Wall Street. In other words, the traditional realm of finance now sees money to be made as peer-to-peer lenders grow in popularity and prevalence.

“There’s an enormous opportunity for these (peer-to-peer) financial firms to either take away business from the traditional firms, or to fill a need that is not currently being addressed,” said Mark Palmer, a financial analyst at BTIG Research in New York. “In the case of unsecured consumer lending, which is the primary focus of Lending Club, it’s really about taking business away from those credit card issuers who assign an annual percentage rate of 19 percent or more on cards.”

Large financial institutions are involving themselves with this odd breed of loan business. Dealstruck, which was founded in 2013 as a peer-to-peer lender, is now funding most of its loans with its own borrowings or through institutional investors—big companies such as asset managers and hedge funds who pool and invest money on behalf of corporations and rich folks.

BlackRock, one of the largest of those institutional investors, holds a stake in Prosper Marketplace, one of the oldest peer-to-peer lenders. Prosper made headlines last week when it landed $165 million in a Series D round from a list of investors that include the asset management arms of some of the largest banks: Credit Suisse NEXT Investors, J.P. Morgan Asset Management, SunTrust Banks, BBVA Ventures, and Neuberger Berman Private Equity Funds, among others. [This paragraph was corrected to reflect SunTrust's ownership. It is not connected to USAA.]

Prosper, OnDeck and Lending Club (NYSE: LC) are the oldest among the lenders, founded in 2005, 2006, and 2007 respectively. All three companies ran through numerous hurdles on in the ensuing years as they sought to establish a place in the market for direct-to-consumer loans, including the financial crisis in 2008. OnDeck (NYSE: ONDK) and Lending Club emerged with the most prominence, after both filed for public offerings last year, though Prosper is catching up.

The lending has stretched into subsectors like mortgages and automobiles, with the rise of companies such as LendingHome and DriverUp. LendingHome has received a $70 million Series C investment from Chinese social-networking company Renren.

While peer-to-peer lending is viewed as a threat to billions of dollars of bank profits, Prosper’s funding round shows that there is no need for an adversarial relationship between traditional banks and the new lenders, Palmer said, adding that there are several avenues for cooperation.

That’s the way BlackRock seems to see it. In February, it purchased about $330 million of the consumer loans that Prosper had made since November 2013, with plans to slice that debt up into tranches and sell it off to other investors—called securitization—while retaining a piece itself, according to a Bloomberg Business report.

Peer-to-peer lenders offer individuals and small businesses a network of investors, typically their wealthy peers or accredited investors, who are willing to collaborate to fund a loan. Instead of receiving a prize or product, like one might in a crowd-funding campaign on Kickstarter, investors expect an interest-based return. Most of the times the individual investors don’t directly own they loans, … Next Page »

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Robo Madness West: The Photos and Takeaways

Mon, 04/13/2015 - 09:15
View the Slideshow Bernadette Tansey

Xconomy’s fourth annual Robo Madness conference in Menlo Park this week drew the best of robotics audiences and speakers, carrying on a strong tradition. This original Robo Madness event is now called Robo Madness West, because its successes in the Bay Area spurred Xconomy to export the idea to Boston this year.

For the lively discussions, cool demos, and dense networking sessions, participants can thank our host and sponsor SRI International, fellow sponsors iRobot and the Fairfax County Economic Development Authority, plus other partners and underwriters: Alexandria Real Estate Equities, Michigan Economic Development Corporation, ARCH Venture Partners, Avalon Ventures, Polaris Partners, and Founders Space.

A big round of applause to our expert speakers and panelists as well as our audience members—you may spot yourself in the pictures captured by photographer Scott Bramwell, who has a great eye for robot technology as well as the human moments that make these gatherings so much fun.

Here are the big themes that ran through all the conference conversations:

1. Robots have a wow factor that instantly attracts people, but the public is also wary of real or imagined dangers from products such as drones flying in the nation’s air space. Rich Mahoney, director of the Robotics Program at SRI International, says industry players need to dispel images of sci-fi robots like the Terminator. “We need to change the story people tell themselves about the future they will live in.”

2. The dropping cost of many components is spreading the use of intelligent automation to new industries such as agriculture, food preparation, healthcare, rehabilitation, and ordinary household equipment.

3. What is the definition of a robot? That question is fresher than ever. New product classes for wired homes and connected cars are blurring the lines between categories.

4. Robotics can “democratize quality” in complex procedures such as surgery, by capturing the precise movements and protocols of the best practitioners in the world.

5. The debate continues on whether robots will deplete the job market for human beings, or foster job creation by increasing productivity, wealth, and reinvestment in the economy.

6. Entrepreneurs must guard against the urge to tackle tough technical obstacles for the pure joy of it, and instead seize on commercial opportunities using discoveries already at hand.

7. Even so, it pays to keep your eye on the far horizon, where DARPA is funding research toward human-like limbs capable of feats like high-rate micromanipulation. “If you want to know robotics, pay attention to what DARPA is investing in,” Mahoney says.

8. Robot makers will face surprising (and funny) cultural challenges as robots circulate among humans. Hotel guests have tried to tip Savioke’s Relay robot when it delivers items to their rooms. They’ll also open their room doors to a robot without getting dressed, Savioke learned. (The company now blurs out Relay’s video vision when the door opens.)

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West Coast Biotech Roundup: Juno, Tekmira, True North, aTyr & More

Fri, 04/10/2015 - 16:56
Alex Lash

We’ll move in geographic fashion through the roundup this week, starting in the Pacific Northwest, where Juno Therapeutics won a patent fight and found a new headquarters. Further south, the Bay Area hosted an IPO and several other financings, and down San Diego way, aTyr Pharma joined the IPO queue. It’s Friday, and we’re roundup-ready.

—Juno Therapeutics (NASDAQ: JUNO) announced a settlement this week of its patent dispute with Novartis (NYSE: NVS). The Seattle developer of cell-based cancer immunotherapies will receive $12.25 million right away from Novartis and potentially much more in milestones and royalties if Novartis’s CTL019 advances through clinical trials and onto the market. The fight centered on a piece of bio-engineering, used by both companies, that helps a cancer patient’s T cells become more tenacious cancer fighters.

—Juno also said it has signed a seven-year lease for 80,000 square feet in a building, not yet constructed, in Seattle’s South Lake Union neighborhood. The company could start to move in next year. The new building will retain an historic sidewalk clock, which was built by a once-famous Seattle company of a bygone era.

—Burnaby, BC-based Tekmira Pharmaceuticals (NASDAQ: TKMR) got the FDA’s nod to resume a Phase 1 trial of its Ebola treatment after the agency put it on hold last July. The trial will test the drug’s safety in healthy volunteers, and Tekmira said it expects results in the second half of 2015.

—Carbylan Therapeutics (NASDAQ: CBYL) of Palo Alto, CA, debuted its stock Thursday on the Nasdaq after raising $65 million in its initial public offering. It sold 13 million shares at $5 apiece, and another $9.75 million could potentially come from the bankers’ extra allotment. The firm’s lead product is a combination of a steroid and a hydrogel in Phase 3 for knee pain relief.

—True North Therapeutics of South San Francisco announced a $35 million Series B round led by OrbiMed Advisors. The cash will help it conduct Phase 1 tests on its lead program, an antibody that aims to shut down rare autoimmune conditions.

—Raptor Pharmaceutical (NASDAQ: RPTP) of Novato, CA, a developer of treatments for rare diseases, said Wednesday it has raised $98 million in gross proceeds from a secondary stock sale.

—Prothena (NASDAQ: PRTA), which is domiciled in Ireland but does its R&D in South San Francisco, CA, aims to raise $122 million in gross proceeds from a secondary sale of 3.3 million shares at $37 apiece. It could add another $18 million if its bankers sell their extra allotment.

—Exelixis (NASDAQ: EXEL) enjoyed a 5 percent stock bump Thursday when the FDA gave fast-track status to its cancer drug cabozantinib, currently in Phase 3 tests as a second-line treatment for patients with advanced renal cell carcinoma. Under the brand name Cometriq, cabozantinib is already approved in the U.S. and Europe for severe cases of medullary thyroid cancer.

—Catalyst Biosciences, based in South San Francisco, CA, heard from Pfizer that their six-year-old hemophilia licensing deal is kaput. The news comes as Catalyst is trying to merge with Targacept (NASDAQ: TRGT). Targacept, which disclosed the bad Catalyst news Monday, saw its stock price fall 20 percent this week before a slight rebound Friday morning.

—San Diego’s aTyr Pharma filed for an IPO this week after raising $76 million last week in a Series E financing round. The company is developing physiocrine-based drugs for severe, rare diseases. In its IPO filing, aTyr says it has completed an early stage clinical trial of its lead drug candidate for treating adult patients with facioscapulohumeral muscular dystrophy (FSHD), a rare genetic muscle disease that has no approved treatments.

—Regulus Therapeutics (NASDAQ: RGLS) said its microRNA-based compound RG-125 is the first to be selected for clinical development under its strategic alliance with AstraZeneca (NYSE: AZN), the global pharmaceutical company based in London. According to Regulus, AstraZeneca chose the compound as a clinical candidate for treating non-alcoholic steatohepatitis (NASH) in patients with type 2 diabetes and pre-diabetes. AstraZeneca will pay Regulus $2.5 million.

—San Diego medical device maker Aethlon Medical said it has engineered a 1-for-50 reverse stock split and applied to list its shares on Nasdaq. The company, which has a dialysis-like filter for treating Ebola, said the split would reduce the number of outstanding shares from roughly 323 million to 6.7 million. If approved by regulators, Aethlon’s stock would trade under the symbol AEMD.

Xconomy San Diego editor Bruce Bigelow contributed to this report. 

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Innovation Hub: Why Science Plays Small Ball

Fri, 04/10/2015 - 14:56
Kara Miller

The scientific revolution has ended. Or, at least it’s on pause, according to Roberta Ness, vice president of innovation at the University of Texas Health Science Center. She believes that science’s most promising thinkers aren’t taking big enough risks. They’re not researching the next penicillin or investigating new theories of relativity; they’re playing it safe.

Ness points out that there are a number of reasons for this, and funding is one of them. Industry is interested in ideas that are marketable, commercializable, and profitable. And earth-shattering innovations often don’t have immediate implications for the bottom line. I spoke with Ness about scientists’ frustration—and possible solutions.

[This interview has been edited and condensed. For the full conversation, visit innovationhub.org.]

Kara Miller: What was going so wrong in academia that you wanted to bring attention to it?

Roberta Ness: There are truly barriers to innovation within the system of science that I became concerned about on the basis of what, frankly, the next generation of scientists were telling us. So as I was going around the country, and very frequently a young person would stand up and say, “I love what you just talked about. I would give my eyeteeth to pursue that thinking, but if I did I would never be able to get a grant again.” After that conversation happened at least half a dozen times, I started saying, “Wow…there is a problem here.”

KM: What is the barrier? Are people in academia not encouraged to take a risk?

RN: There are a plethora of reasons. One of those reasons is that this country has been racing towards more commercialization, more entrepreneurship. And products that are created out of that kind of science, that kind of thinking, tend to be much more evolutionary. They are much more the obvious next step. Things that are truly revolutionary innovations are oftentimes conceptual and not patentable, so, in some ways, they are devalued in today’s culture.

KM: What kinds of things tend to get funded by private companies rather than public entities? How do they differ in what they fund?

RN: The government continues to be the major source of funding for basic science. But it is no longer the most dominant source of funding overall for research and development. Industry has taken on that role, and they are interested in a profit margin. They are working from quarter to quarter, trying to make boards happy, and trying to make investors happy. They are really looking at what’s marketable, commercializable, and profitable. And again, big innovations—earth-shattering, science-changing kinds of creativity—are not that.

KM: OK, so how do you change this trend, and embrace earth-shattering work?

RN: The government needs to have a transparent, honest conversation with the American public and policymakers, so that we can decide on a portfolio of funding science. The portfolio will need to support both the evolutionary, normal science projects that are ongoing and support a real number of much higher-risk projects. After one of my talks at the National Institutes of Health, a director stood up and asked how they could tell the difference between a risky proposal and a crazy, infeasible proposal. I told them that they couldn’t. In other words, when venture capitalists take a risk on something new, they know that 95 percent of the time, they will fail.

KM: Are people outside of the science community surprised that there is a creativity crisis?

RN: There are a number of pundits like David Brooks and Tyler Cowen who have made the same claim that I do. But most people are incredulous. They think there are breakthroughs every minute because of the number of new apps and the speed of smartphones’ growth. But these breakthroughs are evolutionary. They are not the type of breakthroughs that science needs to have to solve the problems that are going to destroy us like climate change, water scarcity, emerging epidemics, and cancer. It’s astonishing how big these problems are and how little progress is being made.

Tricia Breton contributed to this write-up.

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Tax Time Alert: Key Things to Know About Founders Preferred Stock

Fri, 04/10/2015 - 10:11
John Demeter

As you gather and review tax papers for your return, be sure to inform your accountant if you hold founders’ preferred stock, or if you sold a block of it in 2014.

Your CPA might not think to ask you about this because so few entrepreneurs hold this class of stock. As recently as 20 years ago, founders’ preferred stock (FPS) didn’t even exist. Lawyers for hot startups in high demand “invented” it to give founders a vehicle to pocket some cash by selling some of their equity in their wildly successful companies before they went public. That’s the type of transaction you need to share with your CPA now.

Many founders have heard about founders’ preferred stock, but fewer than 5 percent of companies that launch today have issued FPS to their founders. Those who do have it typically take a small portion of their equity holdings—less than 20 percent—in FPS. (The balance is common stock.) Nevertheless, all founders should understand its pros and cons so they can decide whether it’s worth fighting for.

FPS is, for all practical purposes, common stock with special conversion rights. It functions like ordinary founders’ common stock until it’s purchased by investors who are also buying preferred stock directly from the company. At that point of purchase, it converts automatically into preferred stock. Under any other conditions—a sale to any other purchaser in any other circumstance—it reverts, like Cinderella at midnight, back to common stock. It also reverts to common stock if the company is acquired or goes public.

Some founders like holding FPS because they can sell a few shares when the company is raising money in a preferred stock financing: they further dilute their ownership stake, but they get to pocket the cash themselves rather than having it go to the company the way the proceeds from the sale of other preferred stock do. FPS therefore gives them the option to pull capital from their startup without a liquidity event like a merger or public offering. They can bypass some tax-related headaches, too: When an investor buys FPS as part of a preferred stock financing, FPS converts to the preferred stock with few of the tax and accounting complexities that arise in repurchase, buyback, or exchange transactions with a founder.

Investors may be willing to buy FPS if it’s the only way to get a bigger piece of a hot company. But they are more likely to be leery of startups where founders hold this special stock. Some view the founders’ insistence on FPS as a warning sign that that leadership is hedging its bets. Instead of being fanatical about growing their business, they’re already contemplating how to secure a payout. A founder holding FPS can also make an otherwise straightforward deal more complex than it needs to be. Securing funding is a challenge even under the best of circumstances. Why make it easier for prospective investors to turn you down?

Not all founders want FPS, despite its cachet in some circles. They might not need the cash thanks to a successful exit or two already under their belts. They may not want to spend the time and money to hammer out the relevant clauses when they’re incorporating their company. Or they might have no plan to sell any part of their company until a major liquidity event. Sometimes legal questions have easy, straightforward answers. More often, they don’t. This is one of those cases. If you’re weighing whether FPS makes sense for your business and your future, think through these questions and then discuss them with a trusted legal advisor:

  • What is my vision for this startup? Am I planning to sell it in a few years for a few million dollars and then move on to something else? Or do I want the option of accessing cash during the long haul?
  • Will I want or need to extract money from my startup? Do I have some major expenses coming up—such as buying a house or paying tuition—that will require ready cash? Or do I have assets I can more easily tap?
  • Are investors likely to buy my FPS? Would they rather put their money back into my company than allow me to pull out cash for my personal use?
  • What tax burden will I face when I sell my shares? That’s a question you absolutely should ask your CPA or financial planner.
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Financier Ernest Rady Commits $100M to UC San Diego Business School

Wed, 04/08/2015 - 13:28
Bruce V. Bigelow

Ernest Rady is the San Diego gift who just keeps on giving.

After donating $30 million to UC San Diego in 2004 to support the university’s newly established School of Management, with another $5 million for campus expansion, the billionaire philanthropist and his wife Evelyn have agreed to donate an additional $100 million to recruit and retain faculty at the business school that bears their name.

Last year Ernest and Evelyn Rady donated $120 million to Rady Children’s Hospital-San Diego, which is affiliated with UC San Diego, to sequence and analyze the genome of every pediatric patient admitted there. The commitment followed a $60 million gift in 2006 from the Rady family and American Assets, the private company Rady founded in 1967 that manages and controls a group of financial services, investment management, and real estate companies.

Rady moved to San Diego in 1966 with his family from Winnipeg, in Canada’s Manitoba Province, where his late parents are memorialized by the Rose and Max Rady Jewish Community Centre. He also serves as chairman and president of the San Diego-based Insurance Company of the West, and as chairman and CEO of Irvine, CA-based Westcorp (NYSE: WES), which operates one of the nation’s largest independent automobile finance companies, and Western Financial Bank, a Southern California community bank.

Much of Rady’s donation will be used to create endowed professorships and other financial packages to attract and keep top scholars, according to a statement from UC San Diego.

The Rady School of Management has 27 full-time faculty, according to an account by U-T San Diego reporter Gary Robbins. That number is expected to eventually rise to 65.

The school is competing for business faculty with such rivals as Stanford, Berkeley, and UCLA, and the demand for professors in finance and accounting is especially keen. According to Dean Robert S. Sullivan, the basic annual salary for a new assistant professor in finance is $200,000 to $210,000.

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Lender Dealstruck Plans Expansion With $58M Equity, Credit Funding

Wed, 04/08/2015 - 12:35
David Holley

Dealstruck, the San Diego-based lender to small- and medium-sized businesses, announced it has raised an $8.3 million round of equity funding led by Trinity Ventures and a new $50 million credit facility led by Brevet Capital Management.

The new financing brings Dealstruck’s lending capacity to more than $100 million, the company said, and will be used to lend more money to small businesses nationally. Since its launch in October 2013, the company has made more than $50 million in loans.

Dealstruck offers loans of between $50,000 to $250,000 to qualifying small- and medium-sized businesses—typically those that have more than $20,000 in revenue, the company says on its website. Dealstruck’s roots are in crowdsourcing the loans from accredited investors, rather than operating solely as a direct lender to the businesses, as Xconomy’s Bruce Bigelow detailed during an interview with CEO Ethan Senturia in 2013.

Dealstruck’s business has migrated from being a pure peer-to-peer lender, however, and now primarily funds loans from its own balance sheet and institutional investors, Senturia wrote in an e-mail after Wednesday’s announcement.

The company has customers in 43 states and offers three base product: a term loan, an asset-based line of credit, and an inventory line of credit. Duration of the loans ranges from six to 48 months, and the interest rates are slightly higher than that of a bank, in the low teens, Senturia wrote.

Dealstruck is a part of an active alternative lending market, with new entrants such as Fundbox, which offers short-term loans for a single fee, and more established public companies such as San Francisco’s Lending Club (NYSE: LC) and New York-based On Deck Capital (NYSE: ONDK). Palo Alto, CA-based Upstart makes loans to 20-somethings who may need funding for a startup or are looking to consolidate debt, as Xconomy’s San Francisco Editor wrote in December.

Brevet Capital is a New York-based hedge fund that also makes direct loans to small- and medium-sized businesses. Trinity Ventures, focused on early stage tech companies, is based in Menlo Park, CA.

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After raising $76M in Series E Round, aTyr Pharma Files for IPO

Tue, 04/07/2015 - 11:33
Bruce V. Bigelow

San Diego’s aTyr Pharma, which raised $76 million last week from a group of venture and institutional crossover investors, intends to raise an additional $86.2 million through an IPO, according to a regulatory filing yesterday.

The company was founded in 2005 by two scientists at The Scripps Research Institute, Paul Schimmel and Xiang-Lei Yang, to commercialize their work in a new field of biology, known as physiocrine biology. Including the $76 million Series E round disclosed last week, aTyr has raised a total of roughly $184 million.

Major shareholders (and the percentage of their ownership stake) include Fidelity Investments (13.5 percent), Domain Associates (10.5) Polaris Partners (10.5), Alta Partners (10.3), Cardinal Partners (10.1), Sofinnova Ventures (8,9), and Baker Brothers Life Sciences (8.9).

Physiocrines are naturally occurring proteins that catalyze a key step in protein synthesis. Because physiocrines regulate this process, aTyr says physiocrines help to restore stressed or diseased tissue to a healthier state. The company has so far identified over 300 physiocrines, and maintains that the immune system acts differently in the presence of some genetic mutations that alter protein levels, structure, or function compared to normal tissue.

In its IPO filing, aTyr says, “By leveraging our discovery engine and our knowledge of rare diseases, we aim to build a proprietary pipeline of novel product candidates with the potential to treat severe, rare diseases characterized by immune dysregulation.” Instead of blocking or inhibiting target molecules, however, physiocrines act by revving up or throttling back an immune response rather than turning it off completely.

Capital raised through the IPO would be used chiefly to fund aTyr’s ongoing early stage clinical trial of an experimental compound for treating facioscapulohumeral muscular dystrophy (FSHD), a genetically based degeneration of muscles of the face, shoulder blades, and upper arms.

The biopharmaceutical said it also plans to use some proceeds to advance other research and development activities, and for working capital and other general corporate purposes.

“We believe that Physiocrines have evolved over time to modulate important cellular pathways by interacting with various types of cells, including immune and stem cells,” aTyr says in its IPO filing. “Approximately 100 of these proteins interact with the immune system, which we believe presents a significant therapeutic opportunity to restore affected tissues to a healthier state through natural immuno-modulation mechanisms.”

The company has never been profitable, and aTyr reported annual net losses of $20 million in 2013 and $24.4 million in annual 2014. At the end of December, aTyr said it had an accumulated deficit of $110.2 million.

The company said, “Substantially all of our net losses resulted from costs incurred in connection with our development of and clinical trials for Resolaris [aTyr's lead drug candidate], our other research and development programs and from general and administrative costs associated with our operations.”

The company plans to list its common stock on The NASDAQ Global Market under the symbol “LIFE.”

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